How to Analyze the Operating Expense Ratio
Operating expense ratio is one of the best measures you can calculate in order to see how a company is performing. Operating expense ratio shows you what percentage of a company's revenues is used to pay for basic operating expenses. By looking at a company's operating expense ratio over time, as well as the operating expense ratio of its competitors, you can get a good idea of how well the company manages expenses as it grows its business.
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Instructions
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Locate the company's income statement, which can be found in the annual report on the company's website. Find the company's operating expenses and gross revenues.
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Calculate the operating expense ratio by dividing the company's operating expenses by its revenues. Multiply the result by 100 to convert the ratio into a percentage.
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Compare the operating expense ratio of the company to other companies in the same industry. Look at the ratios of other companies, both in present day and in recent months and years, in order to gain perspective through comparison with healthy companies.
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Examine other types of ratios, such as current ratio, profit margin, inventory turnover ratio and debt to equity ratio, in conjunction with operating expense ratio to make an analysis that covers all of a company's financial data.
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Tips & Warnings
In addition to investments, you can use the operating expense ratio in your personal finances. Operating expense ratio can be useful if you're thinking about renting out a room in your house or purchasing a rental property.
No one ratio can determine whether or not an investment is wise. Use the operating expense ratio in conjunction with other ratios, sound financial advice and your own judgment as your guides in making your investment decisions.
